UNITED MOBILE SOLUTIONS, LLC
AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
For the Years Ended December 31, 2014 and 2013
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Member of United Mobile Solutions, LLC; United Prepaid, LLC; and International Touch Point, LLC
We have audited the accompanying combined balance sheets of United Mobile Solutions, LLC; United Prepaid, LLC; and International Touch Point, LLC as of December 31, 2014 and 2013, and the related combined statements of operations, member’s deficit and cash flows for each of the years then ended. United Mobile Solutions, LLC; United Prepaid, LLC; and International Touch Point, LLC’s management is responsible for these financial statements. Our responsibility is to express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
We were not engaged to examine management’s assertion about the effectiveness ofUnited Mobile Solutions, LLC; United Prepaid, LLC; and International Touch Point, LLC’s internal control over financial reporting as of December 31, 2014 and, accordingly, we do not express an opinion thereon.
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of United Mobile Solutions, LLC; United Prepaid, LLC; and International Touch Point, LLC as of December 31, 2014 and 2013, and the combined results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred operating losses, has incurred negative cash flows from operations and has a working capital deficit. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is also described in Note 2 to the financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ D. Brooks and Associates CPA’s, P.A. | |
| D. Brooks and Associates CPA’s, P.A. | |
| West Palm Beach, FL | |
| January 26, 2016 | |
| D. Brooks and Associates CPA’s, P.A. 319 Clematis Street Suite 318, West Palm Beach, FL 33401 – (561) 429-6225 |
UNITED MOBILE SOLUTIONS, LLC AND AFFILIATES
COMBINED BALANCE SHEETS
| | | December 31, | |
| | | 2014 | | | 2013 | |
| ASSETS | | | | | | | | |
| Current Assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 42,363 | | | $ | 256,166 | |
| Accounts receivable, net | | | 489,165 | | | | 750,702 | |
| Inventory, net | | | 763,152 | | | | 729,854 | |
| Prepaid expense | | | 32,335 | | | | 15,278 | |
| Total current assets | | | 1,365,051 | | | | 1,752,000 | |
| | | | | | | | | |
| Property and equipment, net | | | 399,818 | | | | 196,576 | |
| Customer list, net | | | 38,036 | | | | 11,900 | |
| Total assets | | $ | 1,764,869 | | | $ | 1,960,476 | |
| | | | | | | | | |
| LIABILITIES AND MEMBER’S DEFICIT | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable and accrued expense | | $ | 2,613,198 | | | $ | 1,456,996 | |
| Line of credit | | | 290,000 | | | | 500,000 | |
| Notes payable and capital leases, current portion | | | 96,388 | | | | 59,996 | |
| Due to member | | | 247,419 | | | | 395,459 | |
| Total current liabilities | | | 3,247,005 | | | | 2,412,451 | |
| | | | | | | | | |
| Notes Payable, net of current portion | | | 379,090 | | | | 11,978 | |
| | | | | | | | | |
| Total liabilities | | | 3,626,095 | | | | 2,424,429 | |
| | | | | | | | | |
| Member’s Deficit | | | (1,861,226 | ) | | | (463,953 | ) |
| | | | | | | | | |
| Total liabilities and member’s deficit | | $ | 1,764,869 | | | $ | 1,960,476 | |
The accompanying notes are an integral part of these combined financial statements.
UNITED MOBILE SOLUTIONS, LLC AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
| | | Years Ended December 31, | |
| | | 2014 | | | 2013 | |
| | | | | | | |
| Revenue | | $ | 17,139,231 | | | $ | 14,960,951 | |
| Cost of Goods Sold | | | 13,925,859 | | | | 12,126,322 | |
| Gross profit | | | 3,213,372 | | | | 2,834,629 | |
| | | | | | | | | |
| Operating Expenses: | | | | | | | | |
| General and administrative expense | | | 3,337,972 | | | | 2,642,057 | |
| Depreciation and amortization | | | 89,976 | | | | 35,805 | |
| Income (loss) from operations | | | (214,576 | ) | | | 156,767 | |
| | | | | | | | | |
| Other expenses: | | | | | | | | |
| Bad debt expense | | | (751,262 | ) | | | (73,107 | ) |
| Interest expense | | | (397,867 | ) | | | (52,371 | ) |
| Total other expense | | | (1,149,129 | ) | | | (125,478 | ) |
| | | | | | | | | |
| Net Income (Loss) | | $ | (1,363,705 | ) | | $ | 31,829 | |
The accompanying notes are an integral part of these combined financial statements.
UNITED MOBILE SOLUTIONS, LLC AND AFFILIATES
COMBINED STATEMENT OF MEMBER’S DEFICIT
YEARS ENDED DECEMBER 31, 2014 AND 2013
| | | Member’s | |
| | | Deficit | |
| | | | |
| Balance January 1, 2012 | | $ | (478,156 | ) |
| | | | | |
| Members distribution | | | (17,086 | ) |
| Net income | | | 31,289 | |
| | | | | |
| Balance December 31, 2013 | | | (463,953 | ) |
| | | | | |
| Member’s contribution | | | 110,000 | |
| Member’s distribution | | | (143,568 | ) |
| Net loss | | | (1,363,705 | ) |
| | | | | |
| Balance December 31, 2014 | | $ | (1,861,226 | ) |
The accompanying notes are an integral part of these combined financial statements.
UNITED MOBILE SOLUTIONS, LLC AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
| | | Years Ended December 31, | |
| | | 2014 | | | 2013 | |
| Cash flows from operating activities: | | | | | | | | |
| Net income (loss) | | $ | (1,363,705 | ) | | $ | 31,289 | |
| Adjustments to reconcile net income (loss) to net cash | | | | | | | | |
| Provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | | 89,976 | | | | 35,805 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | 261,537 | | | | (338,071 | ) |
| Accounts payable and accrued expense | | | 1,156,202 | | | | 598,394 | |
| Inventory | | | 33,298 | | | | (294,005 | ) |
| Prepaid | | | (17,057 | ) | | | 104,208 | |
| Net cash provided by operating activities | | | 93,655 | | | | 137,620 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Payment of software development cost | | | (270,162 | ) | | | — | |
| Purchase of property and equipment | | | (6,092 | ) | | | (109,915 | ) |
| Proceeds from note receivable | | | — | | | | 56,934 | |
| Purchase of customer list | | | (43,100 | ) | | | (11,900 | ) |
| Net cash used in investing activities | | | (319,354 | ) | | | (64,881 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Proceeds (repayments) from notes payable and line of credit | | | 193,504 | | | | (130,971 | ) |
| Proceeds from (repayments of) members loans | | | (148,040 | ) | | | 181,259 | |
| Member contribution | | | 110,000 | | | | — | |
| Distribution to members | | | (143,568 | ) | | | (17,086 | ) |
| Net cash provided by financing activities | | | 11,896 | | | | 33,682 | |
| | | | | | | | | |
| Net increase (decrease) in cash | | | (213,803 | ) | | | 355,655 | |
| Cash – beginning of year | | | 256,166 | | | | (99,489 | ) |
| Cash – end of year | | $ | 42,363 | | | $ | 256,166 | |
| | | | | | | | | |
| SUPPLEMENT DISCLOSURES: | | | | | | | | |
| Interest paid | | $ | 397,867 | | | $ | 52,371 | |
| Income taxes paid | | $ | — | | | $ | — | |
The accompanying notes are an integral part of these combined financial statements.
UNITED MOBILE SOLUTIONS, LLC AND AFFILIATES
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2014 AND 2013
NOTE 1 - ORGANIZATION
Nature of Operations – United Mobile Solutions, LLC, headquartered in Norcross, Georgia, was formed in May 2010 in the state of Georgia and is in the business of providing Value added products and services to T-Mobile dealers, mobile virtual network operations dealers, wireless product and service resellers, exclusive carrier agents, distributors and wholesalers nationwide. In addition to its products and services, the Company is also a authorized Master Agent and wholesale partner of T-Mobile U.S.A. contracted to do business in the southeastern region of the U.S.A including Texas. Where the company provides training and development, new dealer recruitment, retail store development and commissions processing for its sub agents to its customers. These combined financial statements include the results of United Prepaid, LLC, a Georgia limited liability company, which was originally formed as Global Tristar Distribution, LLC on April 12, 2006 for the purpose of enabling its customers to accept wireless prepaid replenishment and marketing of prepaid cell phone air time and International Touchpoint, LLC a limited liability company formed on March 12, 2014 in Texas for the purpose of refurbishing cell phones for resale. Together, these entities are referred to as the “Company”
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements of the Company include the Company and two affiliated entities with common ownership. All material intercompany balances and transactions have been eliminated.
Basis of Accounting
The accompanying combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Financial Accounting Standards Board (“FASB”) has established the FASB Accounting Standards Codification (“ASC”) as the single source of authoritative GAAP.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates include the allowances for doubtful accounts receivable, inventory obsolescence, and the estimated lives of property, equipment, software and customer lists.
Revenue Recognition
The Company recognizes revenue from product sales or services rendered when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. Revenue is recognized upon shipment of products to the customer, and commissions are earned during the period in which the underlying activity occurs.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable represents amounts due from customers from the sale of goods and services. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. The allowance for doubtful accounts totaled $191,586 and $16,354 as of December 31, 2014 and 2013, respectively.
Inventory
Inventories consisting of merchandise for resale are stated at the lower of cost (specific identification) or market (net realizable value). The Company maintains an allowance for obsolete inventory based on an analysis of the slow moving inventory. The allowance for obsolete inventory totaled $454,741 and $514,806 as of December 31, 2014 and 2013, respectively.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. There were no such disposals for the years ended December 31, 2014 and 2013. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. Depreciable lives for software, vehicles, furniture, fixtures, computers and equipment range from three to five years. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.
Software Development
The Company through an affiliate, developed software customized to their specific use. The software was based on the direct expenses of the employees development time plus consulting fees paid to an outsource company. Upon completion and the software being put into use, the amount was capitalized and will be amortized over a 5 year life. The Company capitalized the cost incurred from the time feasibility was determined through implementation. Such costs totaled $270,162 for the year ended December 31, 2014.
Fair Value of Financial Instruments
The Company’s financial instruments are cash and cash equivalents, accounts receivable, due to members accounts payable, a bank line of credit, and long-term debt. The recorded values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values based on their short-term nature. The recorded values of the line of credit and long-term debt approximate their fair values, as interest rates approximate market rates.
Income Taxes
The Company, with the consent of its member, has elected under the Internal Revenue Code to be taxed essentially as a partnership. In lieu of federal income taxes, the member of the member of the Company is taxed on proportionate share of the Company’s taxable income. Management has evaluated the effect of the guidance provided by U.S. Generally Accepted Accounting Principles on Accounting for Uncertainty in Income Taxes. Management has evaluated all other tax positions that could have a significant effect on the financial statements and determined the Company had no significant uncertain tax positions at December 31, 2014 and 2013.
Advertising
The Company expenses advertising costs as they are incurred. During the year ended December 31, 2014 and 2013, the Company incurred advertising costs of $5,605 and $20,664, respectively.
Shipping and Handling Costs
Shipping and handling costs are included in Cost of Sales and totaled $198,768 and $172,903 for the years ended December 31, 2014 and 2013, respectively.
Concentrations
The Company is economically dependent on having access to the inventory financing agreements described in Note 4 in order to conduct its operations. Also, the Company relies on third-party equipment manufacturers or suppliers for all of its supply of phone products.
NOTE 3 - GOING CONCERN CONSIDERATIONS
As shown in the accompanying financial statements, the Company incurred a net loss of $1,363,705 for the year ended December 31, 2014. As of December 31, 2014, the Company reported a working capital deficit of $1,881,954, The Company’s ability to generate continued positive cash flows is dependent on the ability to grow its operating entity as well as the ability to raise additional capital. Management is following strategic plans to accomplish these objectives, but success is not guaranteed. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2014 and 2013 are summarized as follows:
| | | 2014 | | | 2013 | |
| Computers | | $ | 33,169 | | | | 31,204 | |
| Equipment | | | 46,142 | | | | 42,691 | |
| Software | | | 370,514 | | | | 98,869 | |
| Furniture & fixtures | | | 29,601 | | | | 28,751 | |
| Leasehold | | | 73,927 | | | | 73,928 | |
| Vehicles | | | 21,803 | | | | 21,803 | |
| Total | | $ | 575,156 | | | $ | 287,237 | |
| Less accumulated amortization | | | (175,338 | ) | | | (90,661 | ) |
| Property and equipment, net | | $ | 399,818 | | | $ | 196,576 | |
Property under capital leases are included in above property and equipment as follows:
| As of December 31, | | 2014 | | | 2013 | |
| Vehicle and equipment, cost | | $ | 31,979 | | | $ | 31,979 | |
| Less accumulated amortization | | | (14,038 | ) | | | (7,641 | ) |
| Vehicle and equipment, net | | $ | 17,941 | | | $ | 24,337 | |
Depreciation and amortization expense was $35,805 and $89,976 for the years ended December 31, 2014 and 2013, respectively.
NOTE 5 - DEBT
Term Loan – On July 19, 2012 the Company entered into a thirty sixth-month term loan agreement with Chase Bank totaling $183,000. The loan accrued interest at 5.08% per annum. The loan was paid off in equal monthly principal and interest payments of $5,498 with the final payment on October 19, 2014. The loan was collateralized by substantially all business assets. The outstanding balance on the term loan was $53,015 at December 31, 2013.
On June 2, 2014, the Company entered into a Credit Cash Receivable Advance Agreement with Cash NJ, LLC providing an advance to the Company of up to $750,000. The advances bear interest of 14.67% per annum. The loan is to be paid off with equal daily principal and interest payments of $4,269 with any outstanding balance payable by March, 2015. The outstanding balance of the advances was $197,135 at December 31, 2014.
On July 23, 2014, the Company entered into a sixty-month term loan agreement with Chase Bank totaling $500,000. The loan bears interest at 5.50% per annum. The loan is to be repaid in equal monthly installments of $9,570 commencing August 23, 2014. All unpaid principal and accrued and unpaid interest is due on July 23, 2019. The outstanding balance on the term loan was $463,500 at December 31, 2014. Borrowings under the term loan are subject to restrictions on indebtedness, distributions, financial guarantees, and other related items. As of December 31, 2014, the Company is in compliance with all covenants.
On September 10, 2012 the Company entered into a 34 month lease totaling $10,176 with an annual interest rate of 20%. Monthly payments are $382.66. As of December 31, 2014 and 2013 the outstanding principal balance due was $1,419 and $5,295, respectively.
On November 11, 2012 the Company entered into a 60 month lease totaling $16,803 with an annual interest rate of 6.69% with Toyota Finance. Monthly payments are $327. As of December 31, 2014 and 2013 the outstanding principal balance due was$10,599 and $13,664, respectively.
Principal payments due by year are presented as follows:
| Years Ending December 31 | | Amount Due | |
| 2015 | | $ | 293,523 | |
| 2016 | | | 100,312 | |
| 2017 | | | 105,969 | |
| 2018 | | | 108,047 | |
| 2019 | | | 64,762 | |
| Total | | $ | 672,613 | |
As of December 31, 2014 the minimum lease payments under the Company’s capital lease obligations are as follows
| 2015 | | $ | 5,401 | |
| 2016 | | | 3,925 | |
| 2017 | | | 3,598 | |
| Total | | | 12,924 | |
| Less interest | | | 1,171 | |
| Net minimum lease payments under capital lease | | $ | 11,753 | |
NOTE 6 - LINES OF CREDIT
The Company has available a revolving line of credit with a bank for the lesser of (a) $500,000 or (b) the sum of 80% of eligible trade accounts receivable, 50% of eligible inventory, and 40% of equipment, as defined. The line of credit was extended on July 23, 2014 and expired on July 23, 2015. Prior to the 2014 extension, borrowings under the line of credit accrued interest at LIBOR plus 4.081%. The borrowings under the current line of credit bear interest at LIBOR plus 4.848%. As of December 31, 2014 and 2013, the interest rate was 5.012% and 4.248%, respectively. All borrowings are collateralized by substantially all assets of the Company. The outstanding balance on the line of credit was $290,000 and $500,000 at December 31, 2014, and December 31, 2013, respectively. Borrowings under the line of credit are subject to restrictions on indebtedness, distributions, financial guarantees, and other related items. As of December 31, 2014, the Company is in compliance with all covenants.
NOTE 7 - FINANCING AGREEMENTS
The Company maintains inventory financing agreements with lending institutions. The financing agreements are secured by the inventory and related accounts receivable related to each inventory purchase financed through the agreements. The financings agreements below provide for automatic renewals with no change in terms unless either party requests that it not be renewed 90 days in advance of the renewal date.
On September 18, 2013, the Company entered into a twenty four-month inventory financing agreement with Curve Commercial Services, LLC with a total credit line available of $500,000. Purchases made by the Company through the financing agreement bear interest at 18% per annum plus an admin fee of 1% of the gross face amount of each supplier’s invoice. The Company is required to purchase a minimum of $500,000 through the agreement on a quarterly basis or will be charged the greater of (i) one percent of the difference between the amounts of goods purchased by the Company based upon accepted purchase orders during that quarterly period and the minimum purchase amount or (ii) an amount equal to what would have been charged had the Company achieved the minimum purchase amount. Purchases through the financing agreement were $3,291,999 and $1,030,763 for the years ended December 31, 2014 and 2013, respectively. Amounts due under the arrangement were $700,140 and $421,663 as of December 31, 2014 and 2013, respectively.
On January 5, 2014, the Company entered into a separate twenty four-month inventory financing agreement with ProcurePal, LLC with a total credit line available of $500,000. Purchases made by the Company through the financing agreement bear interest at 10% plus an admin fee of 1% of the gross face amount of each supplier’s invoice. The Company will receive an 8% interest rebate if the invoice is paid within 30 days and a 6% rebate if the invoice is paid within 60 days. The Company is required to purchase a minimum of $500,000 through the agreement on a semi-annual basis or will be charged a fee equal to two percent of the difference between the invoiced amount of goods purchased by the Company during the semi-annual period and the minimum purchase amount with a minimum charge of $2,500. Purchases through the financing agreement were $2,122,724 for the year ended December 31, 2014. Amounts due under the arrangement, included in accounts payable and accrued expenses on the accompanying combined balance sheet were $256,779 and $0 as of December 31, 2014 and 2013, respectively.
The total interest expense related to the inventory financing agreements was $353,140 and $52,371 for the year ended December 31, 2014 and 2013, respectively.
NOTE 8 - RELATED PARTY
During the years ended December 31, 2014 and 2013 the Company’s sole member has loaned the Company money for use in its operations. The loans bear no interest and are payable on demand. As of December 31, 2014 and 2013 the Company owed the member $247,419 and $395,459, respectively.
NOTE 9 - LEASE COMMITMENTS AND CONTINGENCIES
The Company leases certain office facilities under long-term non-cancelable operating leases. The leases expire at various dates through 2018. The leases provide for increases in future minimum annual rental payments based on defined increases included in the lease agreements. Also, the agreements generally require the Company to pay executory costs (real estate taxes, insurance, and repairs). Future minimum rental commitments under these operating leases are as follows:
| Years Ending December 31 | | Minimum Lease
Commitments | | | Sub-lease
Income | | | Lease
Commitments | |
| 2015 | | | 147,166 | | | | (10,841 | ) | | | 136,325 | |
| 2016 | | | 57,450 | | | | - | | | | 57,450 | |
| 2017 | | | 43,357 | | | | - | | | | 43,357 | |
| 2018 | | | 14,050 | | | | - | | | | 14,050 | |
| Total | | $ | 262,023 | | | $ | (10,841 | ) | | $ | 251,182 | |
Rent expense, included in operating expenses, from leasing arrangements was $126,334 and $81,220 for the years ended December 31, 2014 and 2013, respectively, which is net of sub-lease rent income of $39,999 and $39,829 for the years ended December 31, 2014 and 2013, respectively.
NOTE 10 - IMPAIRMENT OF ASSET
During the year ended December 31, 2014, the Company reserved of $518,471 it had lent to third party. The Company deemed the investment as not collectible and thus elected to reduce its value to zero. Should the Company collect any or all of the impaired investment; the amount collected will be treated as other income.
NOTE 11 - SUBSEQUENT EVENTS
On January 5, 2015, the Company amended its inventory financing agreement with Curve Commercial Services, LLC. The agreement is twenty-four months and the terms of the financing agreement are the same terms as the Procure Pal, LLC agreement discussed in Note 4.
On January 9, 2015 the Company entered into a twenty four-month term loan totaling $250,000 with Curve Commercial Services, LLC. The term loan bears interest at 18.00% per annum. The Company will pay monthly principal and interest payments commencing on January 12, 2015 and on the first day of each consecutive month. The remaining principal balance, plus all accrued but unpaid interest, is due and payable on the maturity date of January 9, 2017.
On September 2, 2015 the Companies entered into an agreement with ITalk, Inc, whereas the ownership of the Companies will receive $10 and 85% of the fully diluted restricted common shares outstanding of ITalk.
The company has evaluated subsequent events through January 26, 2016 which is the date the financial statements were available for issuance.
